Tips for Financial Wellness as You Near Retirement

August is widely recognized as Wellness Month, a time dedicated to prioritizing various aspects of well-being. While physical and mental health are often the focus, financial wellness is equally crucial, especially for older adults nearing retirement.

Financial wellness can help ensure a secure and comfortable retirement, free from financial stress and uncertainty. Here’s what you need to know.

Understanding Financial Wellness

Financial wellness refers to the overall health of an individual’s financial situation, encompassing effective money management, preparedness for emergencies, and a clear path toward long-term financial goals. It’s about achieving a balance where financial stress is minimized, and financial security is maximized.

For retirees, financial wellness is paramount. According to a 2024 report by the National Institute on Retirement Security (NIRS), 40% of retirees did not have a formal retirement plan before they retired, leading to challenges in managing their finances effectively.

Financial wellness in retirement involves strategic planning and disciplined management of assets and expenses. Having a financial plan can help ensure that retirees can maintain their desired lifestyle, cover healthcare costs, and leave a legacy without the fear of outliving their resources.

Enhancing Financial Wellness

Assessing Current Financial Health: You should begin by taking a look at your overall financial status. This includes understanding your assets, liabilities, income, and expenses. Knowing where you stand financially is the first step toward making informed decisions.
Identifying Financial Goals: Identify what you want to achieve with your finances. Whether it’s maintaining a certain lifestyle, traveling, or leaving an inheritance, clear goals will guide your financial decisions and planning.
Creating a Retirement Plan: A well-thought-out retirement plan is essential for helping ensure financial security. It helps in mapping out the financial future and preparing for potential challenges and opportunities. Here are some initial steps to include:
1. Assess Your Retirement Needs: Determine how much money you will need to support your desired lifestyle in retirement. Consider factors like living expenses, healthcare costs, and leisure activities. Currently, U.S. adults believe $1.46 million is needed to retire comfortably.
2. Calculate Your Retirement Income: Identify all possible sources of retirement income, including pensions, savings, investments, and Social Security. Ensure that these sources can adequately support your retirement needs.
3. Budget for Retirement: Create a detailed budget that outlines your expected income and expenses in retirement. This can help in managing finances effectively and avoiding overspending.
Managing Investments Wisely:
1. Diversification: Diversification is key to minimizing risk and helping ensure steady returns. Consider spreading your investments across various asset classes such as stocks, bonds, real estate, etc.
2. Understanding Risk Tolerance: Your risk tolerance will likely change as you approach retirement. Ensure that your investment strategy aligns with your comfort level regarding potential losses and market volatility.
Reducing Debts: According to the Federal Reserve’s Survey of Consumer Finances, adults aged 65 to 74 hold an average of $134,950 in debt, while seniors 75 and older hold an average of $94,620 in debt. Aim to pay off high-interest debts before retirement. Consider strategies such as refinancing or consolidating debts to help reduce interest rates and monthly payments.
Cutting Unnecessary Costs: Review your expenses and identify areas where you can cut costs. This might include downsizing your home, eliminating luxury items, or renegotiating service contracts.
Maximizing Social Security Benefits: The Social Security Administration reports that about 40% of retirees rely on Social Security for 90% or more of their income, highlighting the importance of additional savings for financial stability. To help maximize the effectiveness of your Social Security benefits, consider your withdrawal strategy. For example, delaying benefits can sometimes increase your monthly payments, but it’s essential to consider your overall retirement plan.
Planning for Healthcare Costs: Healthcare costs can be substantial in retirement. The 2023 Medicare Trustees Report estimates that the average couple retiring at age 65 will need approximately $300,000 to cover healthcare costs throughout retirement. Planning for these expenses helps ensure that you are not caught off guard and can cover necessary medical treatments. Consider investing in long-term care insurance to cover costs associated with extended medical care or assisted living facilities. This can help protect your savings from being depleted by high healthcare costs.
Staying Informed and Educated: Stay informed about the latest financial news and trends. This will help you make better decisions and adjust your plans as needed. Take advantage of financial education resources, such as books, online courses, and seminars. Continuous learning can improve your financial literacy and decision-making skills.
Working with an Advisor: A financial advisor can provide valuable guidance and help ensure that all aspects of your financial wellness are covered. A 2024 Northwestern Mutual study found that retirees who work with financial advisors report higher confidence in their financial future. Three in four Americans with an advisor (75%) believe that they will be financially prepared to retire, compared to just 45% without an advisor who feels the same. Nearly two in three Americans with an advisor (62%) say they know how much they need to save in order to retire comfortably, while about one in three without an advisor (34%) agree.

Final Thoughts

Achieving financial wellness is a vital part of helping ensure a comfortable and stress-free retirement. Assessing your financial health, creating a retirement plan, managing investments wisely, and seeking professional advice can help you secure your financial future.

Johnson Wealth and Income Management is here to help you every step of the way, providing the expertise and support needed to reach your financial goals.

More About Johnson Wealth and Income Management

Who We Are: We are a leading financial advisory firm in Iowa, experienced in helping individuals achieve their financial goals and secure a comfortable retirement.

Services We Offer:

Financial Planning: We create customized financial plans that address your current financial situation and future goals. Our planning process includes budgeting, saving, investing, and risk management.
Investment Management: Our investment strategies are designed to help grow your wealth while managing risk. We offer diversified investment portfolios tailored to your risk tolerance and time horizon.
Retirement Planning: We help you plan for a secure retirement by developing income strategies that help ensure you have a steady stream of income throughout your retirement years. This includes Social Security optimization, pension planning, and withdrawal strategies.
Tax Planning: Our tax planning services help you minimize your tax liability and maximize your savings. We provide strategies for tax-efficient investing and retirement withdrawals.
Insurance Solutions: We can help you make decisions on what types of insurance fit best with your financial situation and long-term goals, including life insurance, long-term care insurance, and annuities.

How We Can Help You Achieve Financial Wellness: We provide tailored advice and solutions to enhance your financial wellness. Our experience can assist you in navigating complex financial decisions, maximizing your retirement income, and helping ensure a secure future.

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